Tax Burden Reduced on Small Businesses

Depending on whether you see the glass as half-full or half-empty, the Uganda budget for 2015/2016 gives a section of small business owners a reason to celebrate. The increasing of the VAT registration threshold is a welcome to many SMEs. This brings with it amendments of The Value Added Tax (VAT) and The Income Tax Act (ITA). This is in line with Uganda Revenue Authority (URA) aim of reducing the administrative burden of small businesses.‪

The VAT amendment bill proposes to increase the annual turnover threshold for VAT registration from Ush 50 million to 150 million. This means that a broader range of small businesses will be excluded from the requirement to register for VAT. A tax payer below the threshold will still be entitled to apply for (or retain) VAT registration. A registered taxpayer falling below the new threshold may apply for their registration to be cancelled.

The income tax amendment bill proposes to increase the threshold for presumptive tax from Ush 50 million to 150 million, while at the same time halving the base tax rate from 3% to 1.5%. This means that SME taxpayers with annual turnover between Ush 50 and 150 million will be entitled to calculate their annual income tax liability based on a flat rate of 1.5% applied to their gross turnover. The tax amount may be a lesser lump sum according to where the turnover falls within the four prescribed brackets.

For tax payers with a gross turnover of less than Ush 50 million, specific lump sum tax amount will apply (ranging from Ush100,000 to 500,000) depending on the nature of the business and location. For instance those earning between Ush35 million to Ush50 million per annum, will pay Ush500,000 per year, while those with less than Ush10 million turnover will pay Ush250,000.

However, with effect 1st July 2015, businesses will not be allowed to claim tax deduction in respect to costs and business expenses relating to suppliers who do not have a Tax Identification Number (TIN). This will apply to all business costs that are more than Ugx1M according to Income Tax Amendment Bill 2015. I have written more of this in my article No TIN No Trade #Uganda .

The bill makes it mandatory for every local authority, government institution or regulatory body to require a TIN from any person applying for a license or any form of authorization necessary for conducting business in Uganda. The URA partnership with Kampala Capital City Authority (KCCA) and the Uganda Registration Services Bureau (URSB) has already registered about 23,000 new taxpayers since its inception. This partnership is among many changes aimed at ensuring more people shoulder the tax burden instead of the current few.

Adapted from PWC’s Tax watch, Tax Amendment Bills – 2015

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